24 Apr GOLD! – April 24, 2018
GOLD! GOLD! GOLD!!! I’m really not much of a gold bug, but, wow, the gold miners seem cheap. Some of them are selling for about 35% of replacement value (ie, the cost you would incur if you were to build an identical facility and related properties). It’s been about 5 years since the bear market in shares of mining companies began. Commodities on the other hand, from Gold to Zinc to Iron Ore, have all recovered quite smartly. I really am no great fan of long-term investments in to mining firms. I hate the icredible high cost of constructing a mine. I hate the tricky geology and metallurgy of turning dirt into revenue. I also don’t like the price you get for your commodty is, well, priced like a commodity. It’s just simple supply and demand…one hiccup in demand, and ugh, watch out below.
Anyway, so much can go wrong with these. They are all cheap now, and they are cheap for a reason. No one likes them. Or, if they like them, they are probably deluding themselves.
With regard to gold specifically, I have been watching the moves of the new Donald Trump Administration with great interest. This year’s budget added $300 billion in extra spending, and the tax cut given to businesses will boost the deficit to well over $1 trillion for years to come. At the same time, businesses in the States are scrambling to find workers, unemployment is rock bottom and costs are increasing across the supply chain for all manufactured products. All this is coming at a time when there might be a good possibility that the countries who have been buying US debt for years, scale back their purchases for either other opportunities or because they lack the resources to do so. We could see a good run up in inflation or a good run up in interest rates, or both. It should be interesting. Running big deficits is easy until it is not.